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Practitioners’ Essentials Roadshow 2017: Audit and Assurance – Dramatic Insights

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I N T E L L I G E N C E A N D I N S I G H T

APRIL 2015 | ICAEW.COM/ECONOMIA ISSUE 37 | ACCOUNTANCY | FINANCE | BUSINESS

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SPEAKER BIOGRAPHY

John Selwood ACA

John is an ICAEW Chartered Accountant and independent training

consultant, who lectures for the major trainers, accountancy practices and

publishers. He speaks on money laundering, ethics, auditing and financial

reporting. Previously, he has been the technical partner for a top 30 firm of

accountants and Head of CharterGroup, the accountancy network.

BUSINESS WITH CONFIDENCE icaew.com© ICAEW 2017

Audit and Assurance

Dramatic InsightsSpring

2017

Presented by John Selwood


Highlights

False Assurance

AAF News round up


• The increase in audit exemptions thresholds

• Independence, ethics and quality control

• The impact of FRS 102

• Audit judgements, understanding and testing complex revenue models, and substantive analytical review

• Future challenges

2015 QAD

Report

What the QAD say


Quality Assurance visit outcomes


• 1. ISA 500 Audit evidence

• 2. ISA 230 Documentation

• 3. ISA 315 Risk assessment

• 4. ISA 530 Audit sampling

• 5. ISA 240 Fraud

2015 Quality

Assurance Top five

weaknesses

The pursuit of better audit quality


• Risk assessment

• Accounting estimates

• Related parties

• Audit team discussions

• Fraud risks

• Independence and audit partner rotation

• Communication with management

• Written and verbal representations

• Audit evidence

A fresh look

at hot audit topics






False Assurance – Part 1


What are your observations about the auditor’s role in

the Audit and Risk Committee meeting?


• Risk assessment

• Significant risk?

• Starts with understanding the entity

• Experts?

Accounting estimates


The S1A asset was purchased

• Is this a separate Cash Generating Unit?

? ?


I don’t think any of us are in a

position to second guess the expertsAudit and risk committee


What do you think about the chat at the drinks party?


Audit planning

Record all related parties

Fraud risk assessment

Fieldwork

Special scrutiny of RP

transactions

Unrecorded RPs require extra

special scrutiny

Related parties


Cyber-security meeting


What do you think about the audit

partner rotation?


• Management incentives

• Accounting estimates

• Cyber security

• Related parties

• Fraud/bribery/laws and regulations

• Going concern

• Independence threats?

Part 1 Sum up

Risk assessment




Audit team discussion – Fraud!


What does this meeting outside the

drinks party teach us?


The auditors are being inconsistent


..what about this meeting?


What do you think of how the Premintel expenses

were dealt with?


• Fraud risks and related parties

• Integrity

• The need for scepticism

• A problem for new (junior?) audit partners

• The value of verbal/written representations

Part 2 Sum up

Audit evidence




What audit risk is this?

..and this?


S1D Cancellations

IT overspend

IMPACT ON AUDIT?


Remember this chat about the IT invoice?

What went well?

What went less well?


How would you have managed the meeting

with Alex Frayn?


• Fraud risks are significant because fraud is hidden

• The importance of scepticism

• The value of seeking an understanding of the entity from broad sources

• Consider who you approach regarding fraud

Part 3 Sum up

Dealing with fraud




What would you have done?


AAF News – Audit reports


• Bulletin: Compendium of illustrative auditor’ reports on United Kingdom private sector financial statements for periods commencing on or after 17 June 2016

Published

October 2016


Earlier periods

Old regime

PC 1 Jan 2015

SI2015/ 980

Early adopters

PC 1 Jan 2016

SI2015/ 980

All

PC 17 June 2016

Full new regime

Audit reporting regimes


Example – Entity only prepares a directors’ report


Opinions on other matters prescribed by the

Companies Act 2006

In our opinion, based on the work undertaken in the

course of our audit:

• the information given in the directors’ report for the

financial year for which the financial statements are

prepared is consistent with the financial statements;

and

• the directors’ report has been prepared in accordance

with applicable legal requirements.


Example – Entity prepares both a directors’ report

and a strategic report


Opinions on other matters prescribed by the

Companies Act 2006

In our opinion, based on the work undertaken in the

course of the audit:

• the information given in the strategic report and the

directors’ report for the financial year for which the

financial statements are prepared is consistent with

the financial statements; and

• the strategic report and the directors’ report have

been prepared in accordance with applicable legal

requirements.


Matters on which we are required to report by

exception

In the light of the knowledge and understanding of the

company and its environment obtained in the course of

the audit, we have not identified material misstatements

in the directors’ report.

Matters on which we are required to report by

exception

In the light of the knowledge and understanding of the

company and its environment obtained in the course of

the audit, we have not identified material misstatements

in the strategic report or the directors’ report.


Earlier periods

Old regime

PC 1 Jan 2015

SI2015/ 980

Early adopters

PC 1 Jan 2016

SI2015/ 980

All

PC 17 June 2016

Full new regime

Audit reporting regimes


• Report by exceptionNo material uncertainty

exists

• ‘Material Uncertainty Related to Going Concern’

Material uncertainty exists but is adequately disclosed

Going Concern


AAF News – Accountant’s reports



• TECH07/16AAF – Chartered Accountants’ reports on the Compilation of Financial Information of Incorporated Entities; and

• TECH08/16AAF – Chartered Accountants’ reports on the Compilation of historical Financial Information of Unincorporated Entities.

• ACCA has a similar factsheet

• ICAS has its Accounting Framework

ICAEW guidance


• Up to date templates

• Review

• Disclosure checklists

• Training

Quality control


Engagement letters





AAF News – Hospitality


•No gifts or hospitality

•Unless trivial or inconsequential

Gifts and hospitality

Para 4.61D


OK?

Hospitality


“When there is a

judgement call, the

question you now need to

ask is not do you think it is

alright, it’s would a

reasonably informed third

party knowing all the facts

and circumstances think it

is alright.” ’

Tony Bromell


AAF News – Auditor resignation



• Changes at Companies House

• Changes to statements of circumstances

• Changes to ICAEW notifications

What?

• Resignations for periods commencing 1 October 2015When?

Changes to auditor resignation


• An auditor or auditors of a private company hold office in accordance with the terms of their appointment, subject to the requirements that

a. they do not take office until any previous auditor or auditors cease to hold office, and

b. they cease to hold office at the end of the next ‘period for appointing auditors’ unless re-appointed

S487(1)

Automatic reappointment


• The auditor is deemed to be re-appointed unless,

a. he was appointed by the directors, or

b. the company’s articles require actual re-appointment, or

c. the deemed re-appointment is prevented by the members under s488, or

d. the members have resolved that he should not be re-appointed, or

e. the directors have resolved that no auditor or auditors should be appointed for the financial year in question.

S487(2)

Automatic reappointment



• the auditor ceases to practise as an auditor

• the company that the auditor is ceasing to act for qualifies for one of the exemptions from audit under the Companies Act 2006

• the auditor is ceasing to act for a ‘subsidiary’ company of a UK incorporated parent because the accounts of the subsidiary are to be audited as part of the audit of the group accounts by the parent’s auditor; and

• the company that the auditor is ceasing to act for is being liquidated through an insolvency procedure.

S519 Statement of

circumstances

‘exempt’ reasons


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Audit and Assurance Dramatic Insights · The value of ICAEW membership 1 World class library ..... with information and research professionals offering tailored help Qualified professionals